As a dental practice owner, managing your tax burden is just as important as managing patient care. One of the most significant tax-saving tools available to you is the Qualified Business Income (QBI) deduction. This deduction can lower your taxable income, boost your cash flow, and help you make smarter planning decisions — if used correctly.
What Is the QBI Deduction?
The QBI deduction allows owners of pass-through entities (like S-corporations, partnerships, or sole proprietorships) to deduct up to 20% of their qualifying business income on their personal tax return. For many dentists, this can represent a meaningful reduction in taxes — potentially saving tens of thousands of dollars each year.
Why Many Dental Practices Face Limits on QBI
Because dental practices are considered specified service businesses, there are income thresholds that limit or phase out your QBI benefit:
- If your taxable income is below a lower threshold, you may be eligible for the full 20% deduction.
- If your income falls in a “middle band,” the deduction begins to phase out.
- If your income is very high, the deduction can be significantly reduced or even eliminated for the practice portion of income.
These thresholds mean that QBI planning becomes very important — you can’t just assume you’ll get the full benefit.
How QBI Is Calculated for Dental Practices
- Determine Your QBI
You calculate QBI separately for each trade or business you run (for example, the clinic vs. a separate lab or supply business). - Apply the 20% Rule
If you’re under the income limit, you generally take 20% of your QBI or 20% of your taxable income — whichever is smaller. - Calculate Caps (if in Phaseout)
If your income is high and you’re in the phase-out range, your deduction is limited by two possible tests:- 50% of W-2 Wages paid by the practice
- Or 25% of W-2 Wages + 2.5% of the cost basis of your qualifying property (equipment, chairs, clinic fixtures, etc.)
You must use whichever of those caps gives you the larger deduction.
- Determine Your Final QBI Deduction
Your actual QBI deduction is based on the lower of:- 20% of QBI (adjusted)
- The wage/property cap (if applicable)
- 20% of your taxable income, if that is more restrictive
Smart Strategies to Maximize Your QBI Deduction
Here are several tax-planning strategies that dental practice owners can use to protect or maximize their QBI benefit:
Timing Equipment Purchases
- Consider buying major equipment (like chairs, imaging machines, cabinetry) before year-end using bonus depreciation or Section 179.
- Timing these purchases wisely can reduce your taxable income, helping you stay below phase-out thresholds.
Optimize Your Compensation Structure
- For S-corporation owners: the mix between W-2 salary and distributions is a key lever. Paying yourself enough W-2 wages can help you satisfy the wage-based cap.
- Balancing your compensation can also help you maximize the QBI deduction without triggering negative tax tradeoffs.
Entity and Business Structure Planning
- If you run non-clinical lines of business — such as a lab, a supply business, or real estate — consider segregating them so their income is treated independently for QBI purposes.
- Structuring part of your business as a non-service trade can help you maintain a QBI deduction even at higher income levels.
Planning for Practice Sale or Acquisition
- When buying or selling a dental practice, QBI matters. The structure of the transaction (asset sale vs. equity) and how you allocate income can influence how much of the future practice earnings qualify for QBI.
- Use QBI-focused modeling during practice acquisition to understand how your after-tax cash flow and valuation change.
Why You Need Professional Help
QBI rules are complex, especially for high-income dental practices. The decisions you make now — around compensation, equipment, entity structure, and retirement — will affect your QBI deduction and long-term tax burden.
By working with a tax advisor who understands the dental space, you can:
- Run scenario models tailored to your practice
- Structure compensation to maximize deduction and cash flow
- Time your capital investments for tax efficiency
- Plan for future growth or a practice sale with QBI in mind
Call to Action
Ready to make QBI work for your dental practice — not against it?
At LessTaxForDentists.com, we specialize in tax planning for dentists. We can help you model your QBI deduction, optimize your compensation, and drive long-term profitability. 👉 Book a free QBI strategy session today and start maximizing your tax savings
